What Percentage of Revenue Should You Spend on Marketing?

I just came back from a client prospect meeting. My prospect shared his marketing budget with me in absolute dollar figures. It’s a nice amount, but perhaps not enough. It might be sufficient for the company to professionally establish as a brand; but not enough to grow the company in quantum leaps. While driving back to the office, mulled over the question:

what percentage of revenue should companies spend on marketing?

There are really two ways to derive at this answer.

One way is to look at the company itself and its specific financial, market and competitive situation.

The other way is to look at benchmarks, and see what other companies do. Let’s look at both.

Formula to set your Marketing Investment as a % of Revenue

In Concept:Your marketing investment should be that % of revenue that your company needs to profitable grow the business and strengthen its competitiveness.

In Detail

How much should should companies spend on digital marketing?

How much a company needs to spend on digital marketing depends on these factors

its business age and size,

special internal ‘events’, such as new product launches,

market competitiveness,

customer buying behaviour, and

overall company margins.

As marketing spending precedes actual revenue generation, it’s also constrained by affordability. Hence, to determine the correct marketing budget, it is vital for companies to work with precise sales and growth targets.

Marketing Investment Benchmarks

Let me share with you some industry figures, and help you build a framework to analyze how much you should spend on your marketing.

Based on my review of a number of industry studies, I concluded that, from a benchmarking point-of-view, on average, companies should spend about 10% of revenue on marketing, and one third of that on digital marketing. However, as digital marketing and marketing are morphing and merging, the digital marketing percentage will steadily rise.

According to a 2014 Gartner Research study: “Companies spent on average 10.2% of .. 2014 revenue on overall marketing, with 50% of companies planning to increase to an average of 10.4%” in 2015.

Source: The CMO Survey

The 2010 survey by the CMO Council, of 6,000 CMOs across a range of industries, found that 3/4th of companies spend < 6% of revenue on marketing. The other 1/4th spent between 6-20% (with 2% of respondents going over that). And a small percentage spent over 20% of revenue on marketing.

How to Optimize Marketing ROI

To ensure the highest ROI from your marketing investment, you need a marketing plan, and you need proper analytical tools set in place to measure and optimize the success of your various campaigns, events and projects.

Digital marketeers have it easier than their brand marketing counterparts as they can quantify and proof the ROI of every marketing dollar spent. Unlike sales, marketing ROI isn’t imminent and immediate – not always- so a reasonable timeframe (on average a year) must be applied.

B2B Companies’ Marketing Budget Allocation

To guide your marketing budget allocation, here are a few further food-for-thought industry benchmarks to work with:

According to the Forrester’s US Digital Marketing Forecast 2014 to 2019, the average firm was expected to allocate 30% of their marketing budget to online in 2016, this rate is expected to grow to 35% by 2019.

More than a third of CMOs say that digital marketing will account for 75% or more of their spending within the next five years, according to the Accenture Interactive CMO Study 2014, surveying 600 sr. marketing executives, from 11 countries and 10 industries.

54% of responding companies spent less than $1M / yr on digital marketing in 2014. At the other end of the scale, 4% of companies spent more than $100M / yr. – Accenture Interactive CMO Study 2014

Here’s where their marketing funds go:

Figures vs Objectives

While all these figures are nice averages and possibly useful indications, companies should not underestimate the importance of their company goals when setting their sales and marketing budgets. Yes, even B2B companies can be ‘marketing’ or ‘brand building’ companies. Take Salesforce for example. Here’s one of the fastest growing companies in the world. They spend about 50% of revenue on sales and an additional 25% on marketing. The rest is product development, engineering, management, etc. It takes little brainpower to deduct that their dedication to sales and marketing is what keeping this company’s on its track of massive growth year-over-year.

What about your firm’s marketing expenditure?

Would you like to discuss with us what percentage of revenue would be a reasonable expenditure in your industry? Contact us. We’ll go over your goals, the competitiveness of your industry, your margins and your market needs. Then, you can make the best decision on marketing expenditure, for your firm.

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